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The Government's energy policy and wider climate change programme aims to increase the proportion of electricity generated from renewable sources, such as wind, wave and biomass. The Government's target is to supply 10% of Britain's electricity from renewable sources by 2010, with the aspiration of doubling this share to 20% by 2020. The aims of these levels of renewable generation are to make a significant contribution to national and international targets for reducing carbon dioxide emissions, while improving the diversity and security of the UK's energy supplies. In the period to 2020, however, the contribution of renewables to these aims could be offset by the planned closure of most of the UK's existing nuclear power stations.
To achieve the rapid expansion in renewable energy required by the 2010 target, the Department of Trade and Industry (the Department) introduced in April 2002 the Renewables Obligation. The Obligation requires all electricity suppliers to source a growing percentage of their sales each year from renewable sources. The scheme pushes up the demand for renewable energy, thus increasing the revenue that generators can earn which in turn encourages developers to invest in new generating capacity. Electricity suppliers pass the higher cost of purchasing renewable electricity on to consumers. The Renewables Obligation will cost consumers £1 billion per annum by 2010 rising to £1.5 billion per annum by 2015.
The Renewables Obligation is more expensive than the other mechanisms currently being used under the Climate Change Programme to reduce carbon dioxide emissions. These include promoting energy efficiency through the Climate Change Levy, which is paid by non-household consumers of energy, and controlling the carbon dioxide emissions of key industries through emissions trading schemes. The expense of the Obligation reflects the high cost of renewable generation and poor targeting of the scheme - around a third of the funds exceed the support needed by generators. The Department hopes that funding investment in renewables now will reduce future generating costs and thus the cost of each tonne of carbon dioxide saved. It has not established measures or targets to track the industry's progress in reducing costs, however, and consumers will not necessarily benefit if generating costs do fall.
The Department is working to remove barriers to the achievement of the 2010 target, but this work is imposing further financial and nonfinancial burdens. Support to develop new and emerging renewables technologies and the cost of upgrading the electricity grid, so that it can carry the renewable energy generated, is likely to total £2 billion or more in the period to 2010. New planning guidelines, introduced in 2004, seek to increase the proportion of successful planning applications for renewable sites and will reduce the influence of local communities on planning decisions.
On the basis of a Report by the Comptroller and Auditor General,[1] we examined the Department on the contribution of renewables to the UK's energy and environmental objectives, the cost of the Renewables Obligation for consumers, and the challenges of delivering the 2010 target.
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